Asia Markets recap: Push and pull for stocks

March 24, 2014, 7:55 PM ET

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Welcome to the Asia Markets live blog, a running account of what the region’s stock markets are doing, along with other news. Today, it\’s a tug of war between bulls and bears, as shares start lower after the weak U.S. lead but then move off their lows as buyers step in.

Japan is famous for its sushi, its love of robots — and of course its large government debt.

According to the International Monetary Fund, Japan’s total public debt is approaching two-and-a-half times its GDP this year (though much of it is owed to Japanese rather than foreign creditors), and the outlook isn’t helped by news last week that the 2014 budget will hit a record-high 95.9 trillion yen ($938 billion).

But Marcel Thieliant at Capital Economics, in a note out today, say the headline figure doesn’t mean Prime Minister Shinzo Abe has given up on fiscal consolidation, or at least not completely.

For one thing, he points out that the budget is growing more slowly than the economy: Last year’s expenditure was 19.5% of GDP, while for this year, it will fall to 19.2%.

Also, last year included the passage of supplementary budgets, including a hefty ¥5.5 trillion in spending to offset the economic hit from the nationwide consumption-tax hike set for next month. While these items were part of last year’s bill, much of the outlays are slated for this year.

“Overall, therefore, the rise in budgeted expenditure is not necessarily a sign that the government has reneged on its commitment to fiscal consolidation,” Thieliant says.

And yet…

Thieliant also admits that while there may be some progress, the future of Japan’s books isn’t as bright as Tokyo would like, and “the target of halving the primary deficit by 2015/16 is unlikely to be reached.”

Australian stocks are taking a turn for the cheaper this morning, with the S&P/ASX 200 down 0.3% (vs. a 0.2% gain yesterday), as an overnight retreat on Wall Street and losses for some key commodities take their toll.

With a large drop for gold futures (Comex down 1.9%), a small drop for spot iron ore (down 0.2%), and sideways movement for copper, among other moves, the miners are mostly weaker. The top players are doing ok (BHP Billiton down 0.1%, Rio Tinto up 0.1%, Fortescue up 0.6%), but otherwise it’s more of a seller’s market: Oz Minerals is down 1.7%, Alumina is down 1.5%, and among the gold names, Newcrest is down 4.1%, Kingsgate is down 7.9%, and St. Barbara is off 8.3% after an update on its Simberi Island project.

Also this morning, we have the Australian dollar lurking around its higest levels of the year (currently buying 91.31 U.S. cents), which appear to be weighing on some shares, with Bluescope Steel down 2%, while Qantas and Virgin Australia lose 2.6% and 2.7%, respectively.

Among the financials, Macquarie is off 1% after strong gains yesterday related to its profit-forecast hike.

On the winning side, David Jones is up 1.6% as it hires bankers to study a possible merger with Myer (shares of which are down more than 4% as they trade without rights to the latest dividend).

And retailer Premier Investments is enjoying a 5.1% gain after gains for its half-year profit and a modest increase in the dividend.

Tokyo is off to weak start, with the Nikkei Average slicing 1% off yesterday’s rally, while the Topix surrenders 0.8% in early moves.

It’s not a yen problem — the dollar is currently buying ¥102.23, a mild gain from yesterday, though off the pair’s overnight highs around ¥102.60. Rather, the obvious negative factors include a weak U.S. lead and the fact that the Nikkei closed 1.8% higher in Monday trade, inviting profit-taking.

The losses are spread liberally across the various sectors, with Hitachi down 2.9%, Toshiba down 3.7%, Mitsubishi Heavy down 3.4%, NTT down 2.9%, Tosoh and Seven & I down 3.3% each, Mazda Motor down 2.8%, Daiwa Securities down 3.1%, and Mitsubishi Estate down 3.7%.

Sumitomo Mitsui Financial Group is 2.4% lower as The Wall Street Journal reports the Japanese megabank has held preliminary talks with RBS to buy its U.S. unit RBS Citizens.

NEC’s just-announced deal to buy a power-storage unit of Wanxiang Group’s A123 Systems for about $100 million is getting a slightly better response from the market, as NEC shares are down a more modest 0.7%.

As for the gainers, Murata Manufacturing is up 6.2%, possibly helped by a 1.2% Monday gain for its key client Apple on the latter’s possible streaming-TV deal with Comcast and chatter of robust demand for the next iPhone.

Package-delivery firm Yamato is up 3.3%, adding to yesterday’s gains as it gets ready to expand its services to China.

Also on the rise: Asahi Glass is up 3.7%, Rakuten is up 2.1%, Advantest is up 3.6%, Olympus is up 2.2%, and Nintendo is 1.2% higher.

Downbeat data from the world’s two largest economies are weighing on Chinese stocks this morning, with weaker-than-expected manufacturing indexes from the U.S. and China helping push Hong Kong’s Hang Seng Index down 0.6%, while the Shanghai Composite loses 0.3%.

Mainland Chinese insurers are suffering a selloff after Malaysian Prime Minister Najib Razak said Monday night that the missing Flight 370 has been confirmed to have crashed in the southern Indian Ocean.

Chinese insurers have reportedly started to pay claims related to the flight, with Ping An Insurance Company making an initial payment of 3.7 million yuan ($600,000) and estimates the total cost will ammount to about 12.5 million yuan, according to state-run China Daily. Shares of Ping An Insurance are falling 0.4% in early Hong Kong trading.

Meanwhile, China Life Insurance is down 0.2% and 0.4% in Hong Kong and Shanghai, respectively, and China Pacific Insurance is down 1% in Hong Kong and off 0.1% in Shanghai.

Most Chinese banks are also trading weaker in Hong Kong, as China Citic Bank slips 0.7%, Bank of Communications pulls back by 0.6%, and Agricultural Bank of China gives up 0.3%.

Given the sudden spikes in China’s interbank lending rates last year, and given that the central bank seems to have no problem with draining liquidity when it wants to curb lending, investing in Chinese banks is not for the faint of heart.

In a note out Tuesday, Bernstein Research says that not only is borrowing now more costly for Chinese banks, but it has also become more difficult for them to attract deposits, as they compete against a forest of alternate investment products, such as trusts and money-market funds.

But Bernstein isn’t completely bearish on the banks — there are a few that they like, and it basically boils down to “bigger is better.”

“Across the banks we cover, we found large banks’ liquidity profile is stronger than smaller banks’ as their reliance on customer deposits, as a cheap and sticky source of funding, and lower dependence on interbank borrowings is a clear competitive advantage,” the Bernstein analysts write.

Of China’s “Big Four” banks — ICBC, China Construction Bank, Bank of China and Agricultural Bank of China — Bernstein likes the first three, rating them as outperform, with a market-perform for Ag Bank.

On the other hand, China Minsheng Banking Corp. and China Merchants Bank both get underperform ratings.

“While we believe a liquidity event such as a bank run is unlikely in China, we do believe risk for such an event has increased over the past 12 months,” Berstein says in evaluating the risks for the sector.

And if you do go ahead and buy the Chinese banks, be prepared to wait a while for significant gains, as improvement for the sector rests on China rolling out promised reforms, the Bernstein analysts say.

“Overall, we believe the banks will not enjoy a re-rating upwards until either serious financial reforms are implemented in China that focus on improving the sustainability of China’s economic growth and/or more market-driven discipline emerges, especially with regards to defaults,” they write.

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